What is the present value of the following series of cash payments: $1,200 per year for four consecutive years starting one year from today, followed by annual cash payments that increase by 3% per year in perpetuity (i. e. cash payment in year 5 is $1,200*1.03, cash payment in year 6 is $1,200*1.032, assume the appropriate discount rate is 9%/year.

$21,964

Explanation:

Present Value = 1200 × cumulative pv factor for year 1 to 4 (9%, 4y) +

Present value = 1200 × 3.2397 + 1236/.06

Present Value =  3887.64 + 20,600 = $21,964 approx.

For the first four years, cash flows can be computed by multiplying $1200 by cumulative present value factor at 9% rate for 4 years.

Fifth year onwards, the cash flows are expected to increase by 3% whereas discounting factor is 9%. So the value 5th year onwards till perpetuity would be increased cash flow for year 5 discounted by excess of present value factor over growth rate (9% - 3 %)

a

b

b

a

c

b

d

d

none of these are correct, as they are all sources of american law

a

answer; is the sum of all individual demands curves;